Broader Economic Adjustments to Climate Change

Even if individual farmers do not successfully perceive and adapt to climate change, market forces will tend to favor those farmers and regions that are more successful in the new climate. These market-mediated responses can range from individual farmers taking over their neighbor's land, to entire regions shifting into and out of production of different crops.

Most studies of market effects to date have focused on the latter mechanism, namely markets adjusting through international trade. All countries participate to some degree in international trade in agricultural commodities, and few households anywhere are fully isolated from markets. Under current climate variability, in which climate shocks typically correlate poorly across regions in a given year, global and regional agricultural markets can move food from areas of surplus to areas of deficit and dampen what might have otherwise been large price effects in regions experiencing shortfall.

Studies that attempt to directly capture these trade effects in understanding the potential impacts of climate typically embed regional production effects in a global trade model, which add up supply and demand across regions for a given period and calculate a market-clearing world price. Farmers and consumers then react to this price in the next period by adjusting what they produce and consume, new production effects are included, and a new world price calculated.

Such studies typically find that allowing countries to trade with one another tends to reduce the estimated negative impacts on global production, as production shifts into areas where the climate becomes more favorable (Rosenzweig et al. 1993; Darwin et al. 1995; Fischer et al. 2002). Figure 8.4 shows production impacts with and without economic adjustment estimated as reported by two major studies (also plotting estimates of gains from all farmer adaptations added together), which suggest that including these adjustments reduces estimated climate losses by anywhere between 25% and 75% of the unadjusted losses. These gains in turn dampen what would otherwise have been large increases in food prices, and reduce negative impacts on food security relative to a non-adjusting world.

But there are many important caveats to these conclusions that relate to the often poorly tested assumptions of the trade models. Most notably, growth in national GDP in these studies is often assumed to be independent of agricultural productivity

changes, and is projected into the future at rates often much higher than recent historical experience. As a result, declines in agricultural productivity do not translate into income declines, and so agriculturally dependent countries that are hit hard by climate change still have the income to purchase imports and cover production shortfalls, thus perhaps underestimating the income-related impacts on food security.

Whether or not agriculturally dependent countries (or households) will in fact be able to maintain food consumption in the face of declines in a primary income source is a crucial question, and underscores the importance of climate interactions with broader economic trends. On the whole, wealthier societies and households appear more adaptable to climate change: they are more willing to adopt higher-risk higher-return technologies because they can smooth consumption through savings or credit markets, they are less sensitive as consumers to food price rises, and they have the infrastructure and resources to import in the face of shortfalls.

Recall from Chapter 2 that climate is only one of many possible factors that shape a given country's longer-run economic trajectory. If households or societies are able to enrich themselves despite the potential adverse effects of climate change, then food security could overall become less sensitive to climate. But in countries where agriculture is a primary engine of growth, climate change could slow overall growth trajectories and limit the expansion of choice that typically accompanies economic development.

Renewable energy is energy that is generated from sunlight, rain, tides, geothermal heat and wind. These sources are naturally and constantly replenished, which is why they are deemed as renewable. The usage of renewable energy sources is very important when considering the sustainability of the existing energy usage of the world. While there is currently an abundance of non-renewable energy sources, such as nuclear fuels, these energy sources are depleting. In addition to being a non-renewable supply, the non-renewable energy sources release emissions into the air, which has an adverse effect on the environment.